Crypto Startups Raised Huge Venture Capital Rounds in January

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A bitcoin sculpture made from scrap metal sits outside the BitCluster cryptocurrency mining farm in Norilsk, Russia, Sunday, Dec. 20, 2020.

Andrei Rudakov | Bloomberg | Getty Images

Cryptocurrency startups are off to a strong start to the year, pocketing hundreds of millions of dollars in fresh cash even as investors wary of a sharp drop in digital asset prices.

Several private companies announced exceptional liquidity injections in January. Crypto exchange FTX and its US subsidiary raised a total of $800 million, valuing the companies at $32 billion and $8 billion respectively.

Crypto infrastructure startup Fireblocks was valued at $8 billion in a $550 million round, while rival Blockdaemon scored $155 million at a valuation of $1.3 billion. It should be noted that some negotiations for these agreements probably started late last year.

It follows a banner year for cryptocurrencies and companies being developed to support industry growth. Crypto and blockchain startups raised a record $25 billion in 2021, marking an eightfold increase year over year, according to data from CB Insights, as venture capitalists sought to ride a rally in bitcoin and other tokens.

Still, the market’s future direction became more uncertain after a strong sell-off. Bitcoin fell to $33,000 in January from an all-time high of nearly $69,000 in November. The world’s largest cryptocurrency ended the month down more than 18%, marking its worst start to the year since the start of a bear market in 2018.

Crypto winter?

The pullback in crypto prices has some investors worried about a more severe downturn known as “crypto winter.” The last such event occurred in late 2017 and early 2018, when bitcoin lost up to 80% from its then all-time high.

“If we’re entering ‘crypto winter,’ it’s not like the bear markets we’ve seen before,” said Konstantin Richter, CEO and Founder of Blockdaemon. “The crypto market today is embraced by institutions. They see the promise that crypto holds. Many institutions are long-term bullish on the technology.”

Digital assets have recently fallen on expectations of higher interest rates from the Federal Reserve and other major central banks. A common investment case for bitcoin is that it can act as an uncorrelated store of value with other financial assets – it is sometimes referred to as “digital gold”.

But there are concerns that this thesis is crumbling as central banks seek to tighten policy in an effort to rein in rising inflation. Along with cryptocurrencies, global equity markets have also fallen, with high-growth tech stocks in particular taking a hit as traders reassess their positioning.

The crypto market “has been volatile from the very beginning,” said Michael Shaulov, CEO and co-founder of Fireblocks. “What is very clear to us is that infrastructure investment is not going to stop.”

Shaulov says whether or not the market is on the brink of another crypto winter, capital will continue to flow into the sector as attention moves beyond “speculative” trading to more sophisticated use cases . These include quickly settling payments through stablecoins and putting financial securities on the blockchain.

Web3

John Linden, CEO and co-founder of crypto gaming startup Mythical Games, said a crypto bear market might not be the worst thing happening right now.

“We could be heading into a crypto winter — and I think, honestly, with any market, that’s not a terrible thing,” he said.

Mythical Games, which wants to incorporate crypto collectibles known as non-fungible or NFT tokens in video games, raised $125 million at a valuation of $1.3 billion in November.

Back in the bitcoin bubble of 2017, “you literally couldn’t go wrong,” Linden said. “You could buy anything there and you made money on it.”

“What we’ve seen is that the projects have collapsed. They’ve started to fade away. And the ones that were really creating value came back 100 times over in a couple of years. I think we’re going to see the same thing.”

Linden says another downturn in crypto markets could drive innovation around “Web3,” the idea of ​​a decentralized internet based on blockchain technology.

“The NFT boom is just beginning as consumer demand, celebrity influence and hype combine,” said Chris Bendtsen, principal analyst at CB Insights.

Price mismatch

Several crypto start-ups have seen their valuations soar in recent months, even as public tech stocks have seen a pullback. the The Nasdaq Composite is down about 12% since hitting all-time highs in November.

The upward trend in crypto startup valuations has led some founders and investors to wonder if there is a mismatch between the public and private markets.

“I think there’s been quite a big dislocation between the public and private markets,” said Sam Bankman-Fried, CEO and co-founder of FTX.

So far, none of the major private crypto companies seem to be talking about going public, which may reflect the generally negative mood in public markets. Coinbase, one of the few publicly traded companies, has fallen more than 40% since its Nasdaq debut.

“Long term, that’s probably the way to go for us,” Shaulov said when asked about a possible Fireblocks IPO. “In the short term, we have no concrete plans.”

Bankman-Fried said FTX was aiming to prepare for its stock market debut, but added that, at this time, “we don’t think we particularly need to do that.”

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